Obligations of an Insurance Carrier Under a Comprehensive General Liability Policy

Wednesday, November 14, 2007
Contributed by: Tom Morris

In case you missed it, you should study and put in your brief book the case of Lamar Homes, Inc. v. Mid-Continent Casualty Co., ___ S.W.3d ___, 50 Tex. S.Ct. J. 1162, 2007 WL 2459193 (Tex. August 31, 2007). It makes new law and overrules all prior inconsistent cases.

Vincent and Janice DiMare purchased a new home from Lamar Homes, Inc. and several years later encountered problems that they attributed to defects in their foundation. They sued Lamar for damages resulting from the alleged foundation defects and Lamar called on Mid-Continent for defense and indemnity under its CGL policy. Mid-Continent refused to defend and Lamar filed a suit for declaration of its rights under the policy and also sought recovery under Art. 2155, Texas Insurance Code (now sec. 542.051-.061 of the Insurance Code). The Federal District Court granted summary judgment for Mid-Continent on all claims and on appeal, the Fifth Circuit certified questions to the Texas Supreme Court as follows:

  1. When a home buyer sues his general contractor for construction defects and alleges only damages to or loss of use of the home itself, do such allegations allege an "accident" or "occurrence" sufficient to trigger the duty to defend or indemnify under a CGL policy?
  2. When a homeowner sues his general contractor for construction defects and alleges only damage to or loss of use of the home itself, do such allegations allege "property damage" sufficient to trigger the duty to defend or indemnify under a CGL policy?
  3. If the answers to certified questions 1 and 2 are answered in the affirmative, does Art. 21.55 of the Texas Insurance Code apply to a CGL insurer's breach of the duty to defend?

The Texas Supreme Court answered questions 1 and 2 "yes" as to duty to defend, but held that the indemnity question was premature since it depended upon findings of fact at trial. It answered question 3 "yes."

In short, under this decision, the insurance company under a CGL policy owes a duty to its insured to defend even though the plaintiff's claim is only for damage to the contractor's own work, i.e., the home, and the insurance carrier may be liable under the Insurance Code for breach of its duty to defend.

This case overrules all prior decisions to the contrary but the Opinion is not yet final. There was a strong dissent by Justice Brister, joined by Justice Hecht and Justice Willett, and motions for rehearing are pending. The Opinion has not yet been released for publication.

This column is published for informational purposes only. It should not be construed as legal advice and is not intended to create an attorney client relationship. The views expressed are those of the author and do not necessarily reflect the views of the author's law firm or its individual partners.